What is the difference between Shi' and Sunnis? My children, my middle school students, and high school students had asked me this question many times.
Islam today consists of two major branches: The Shi' (or Shiites) and the Sunnis who were initially divided by their feelings regarding who should hold temporal power in the Islamic community and the degree to which the person holding temporal power should also hold religious authority.
The vast majority of the world's Muslims are the Sunni, who believe that the four original caliphs and their eventual successors were rightful leaders of Islam.
The Shi' believe that only the fourth of the caliphs was a rightful successor to Muhammad, and that this successor, or Imam, inherited the Prophet Muhammad's divine inspiration. They believe that the Prophet Muhammad explicitly designated his cousin and son-in-law, Ali, as his successor caliph.
The Shi' also believe that, while the prophethood ended with the Prophet Muhammad, this divine inspiration was then passed down to Ali's direct descendents, the next Imam being designated by the first, and so on until the twelfth Imam disappeared in 874 A.D. The Shi' believe an Imam has direct contact with God, and can infallibly sanction new laws and interpret the Qur'an in order to reveal is esoteric meaning.
Sunnis reject this doctrine of infallibility.
Shi' believe that these Imams are the only ones with the right to be caliphs, meaning that all other caliphs are usurpers of the caliphate. According to Shi' theology, Muhammad el Mahdi, the Twelfth Imam, did not die, but went into hiding in caves. He will supernaturally return just before the Day of Judgement to usher in a new golden age of Islam.